Chapter 5, Problem 1FRQ

To determine

The question requires us to draw a hypothetical demand curve and label the variables.

Explanation of Solution

The following table represents the hypothetical price and quantity demanded a product:

Quantity demanded	Price
12	$10
20	$5

The following graph represents the demand curve:

  

Here, D1 is the initial market demand for apple which is downward sloping and following the ‘law of demand’. When the price was $10 per unit, consumers were buying only 12 units of the product, but when the price falls to $5, the quantity demanded rises from 12 units to 20 units.

An increase in demand will shift the demand curve rightward from D1 to D2 as shown in the above graph.

Economics Concept Introduction

According to the law of demand, there is an inverse relationship between the quantity demanded and the price of the product. A price increase will reduce the demand for the product and vice versa.